July 1, 2009
I am a member of the Financial Planning Association and a SEC-registered advisor. I am writing in strong opposition to the proposed 'surprise audit' requirements for advisors who are deemed to custody client assets only because they have the right to withdraw their fees.
This audit requirement would be a tremendous burden on me. I am a sole proprietor with no employees and about 50 clients. An audit that cost $8,100 (your estimate) would be almost one-third of my current annual operating budget, a tremendous burden.
These proposals are clearly a reaction to the Madoff, etc Ponzi schemes and don't get to the heart of why that fraud became so large. It became so large because the SEC ignored signals from whistleblowers; Madoff's CPA audits were fraudulent; he pooled client money and no client had third-party verification--there was nothing about deducting fees in any of that.
My clients get a statement from Charles Schwab and Co., Inc. every month. Their funds are in accounts registered only to them. Aside from paying my fee, I am not allowed to move their money to an account with a different name without their written permission. I believe that I, and other advisors in my situation, are not an appropriate group to focus on to detect fraud by an expensive surprise audit.
My clients need me to be helping them weather the current financial crisis, not taking time to deal with surprise audits, or raising their fees to cover the high cost of such audits.
I urge you to except advisors such as myself, whose clients have accounts registered only to them, whose clients receive third-party statements on a regular basis, and whose only 'custody' is being allowed (by written permission) to deduct fees.